Wrap Text
Unaudited interim report for the six months ended 30 June 2017
MASTER DRILLING GROUP LIMITED
Registration number: 2011/008265/06
Incorporated in the Republic of South Africa
JSE share code: MDI
ISIN: ZAE000171948
REPORT TO SHAREHOLDERS
UNAUDITED INTERIM REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 2017
HIGHLIGHTS FOR THE PERIOD
- USD Revenue was up by 12.5%
- USD Earnings per share increased by 4.8% to 6.6 cents
- ZAR Earnings per share decreased by 10,7% to 87,0 cents
- USD Headline earnings per share increased by 4.8% to 6.6 cents
- ZAR Headline earnings per share decreased by 10,7% to 87,0 cents
- Committed order book of USD115.3 million
- Pipeline of USD226.1 million
- Following maiden dividend for 2016, dividend will only be considered at year-end
COMMENTARY
About Master Drilling
Master Drilling, world leader in the raise bore drilling services industry, was established in 1986 and listed on the
Johannesburg Stock Exchange in 2012. The company delivers innovative drilling technology solutions and has built trusted
partner relationships with blue-chip major and mid-tier companies in the mining, civil engineering, infra-structure and
hydroelectric energy sectors across various commodities worldwide. The Master Drilling business model of providing
drilling solutions to clients through tailor-made designs coupled with a flexible support and logistics chain makes it
the preferred drilling partner throughout the lifecycle of projects from exploration to capital and production stages.
Commenting on the 2017 interim results, Danie Pretorius, CEO of Master Drilling, said:
"Despite a volatile macro-economic and political environment globally, we reported
good interim results today underpinned by a solid USD revenue increase of 12.5% to
USD60.5 million. The stronger emerging market currencies during the current reporting
period however had an adverse impact on earnings.
Although the extended commodity down cycle put pressure on the business, we still maintain a healthy pipeline of
USD226.1 million and a committed order book of USD115.3 million. Our focus on an innovative culture that supports the
customer underpins the resilience of the company's business model throughout economic and commodity cycles.
As a technology-driven company with a global footprint and the ability to customise
solutions to suit specific drilling technology challenges, the current environment presents us
with meaningful opportunities beyond the mining sector. We continue to actively evaluate
the environment our current and prospective clients operate in, to ensure that we
maintain our position as a solution-driven partner across industries, regions, commodities
and currencies."
Financial Overview
Revenue increased 12.5% to USD60.5 million and operating profit decreased 9.6% to USD12.1 million.
The increase in revenue was due to the addition of two new machines compared to the same period
last year and the impact caused by favourable foreign exchange movements in emerging currencies.
The upside of the foreign exchange movements on revenue was less than the impact thereof on cost,
resulting in overall lower profitability.
The decision to invest in people and capabilities to drive future growth resulted in profit before tax
decreasing 9.4% to USD11.5 million. Conservative provisions for taxation in some jurisdictions during
previous years led to a decrease in taxation which supported a profit after taxation of USD10.0 million.
USD earnings per share (EPS) increased 4.8% to 6.6 cents, and ZAR EPS decreased 10,7% to 87,0 cents due to the stronger
ZAR compared to the same period last year. USD headline earnings per share (HEPS) increased 4.8% to 6.6 cents, and ZAR
HEPS decreased 10,7% to 87,0 cents compared to the same period last year.
Net cash generation improve to USD11.7 million following investments in 2016 to cater for higher
volumes of work coming on stream involving new projects across the Group. Debtor days increased
due to longer payment cycles as a result of current economic conditions. Master Drilling will continue
to manage debtors actively to ensure good conversion to cash. Cash resources continue to be managed
stringently to cater for emerging opportunities that require specific design, planning and investment.
91,1% of the Master Drilling capital spend was on capacity expansion with the remaining 8,9% allocated
towards sustainability.
Debt increased from USD31.0 million to USD47.0 million due to the draw-down of an additional ABSA
Facility to fund capital investment for future growth. The net of cash gearing ratio improved slightly to 5,9%.
Operational Overview
The first half of 2017 saw steady market activities, lower than targeted utilisation rates and the initiation of two new
projects that supported the Group's financial performance compared to the same period last year. The current operating
environment stabilised with a healthy level of enquiries and improved operational base throughout.
South America
The Peruvian business experienced a slow start to 2017, however, activities increased since May and the pipeline for the
remainder of the year remains strong.
The Brazilian business has stabilised over the reporting period and is doing well. An increase in the hydroelectric energy sector
is evident and a number of proposals were submitted and are awaiting feedback.
The Chilean business is under pressure due to Codelco, the Group's major client in Chile, cutting back on capital
projects and scaling back on work already awarded due to the lower copper price environment.
A hydroelectric energy project to the value of USD1.9 million was awarded in Colombia and is expected to be completed
towards the end of 2017. Once successfully completed, this technology should assist to unlock the hydroelectric energy
sector for the company across geographies.
Central and North America
The Mexican business had a very strong start to the year. This was supported by a marketing drive and a recovery in the
silver price. Despite market pressures in the Mexican environment, the country outlook remains positive for the
remainder of 2017 and beyond.
An exciting new machine with dual capability of blind shaft boring and raise bore drilling was shipped to the USA during
the reporting period. The North American market is anticipated to remain strong based on enquiries received as well as
the anticipated spend on infrastructure development.
Africa
The potential impact of the proposed new mining charter created great uncertainty in the South African mining industry.
Master Drilling continues to support loyal clients through the extended downturn in the commodity cycle which currently
results in subdued growth in this industry.
Our Zambian operations reported low activity but are performing in line with expectations. In the DRC, our contracts are
doing well and will near completion in the second half of 2017. Our other African projects in Mali, Sierra Leone and Tanzania
are performing as expected.
We remain committed to expansion into appropriate African countries.
Scandinavia
Our investment in Bergteamet Raiseboring Europe AB has not performed quite in line with our expectations in the first half of 2017
due to adverse market conditions and decisions on the next phase of investment have been postponed.
Technology
The continuous improvement in our technology and services remains the cornerstone in providing clients with the specialised,
adaptive and integrated solutions that they require to stay ahead in their respective markets. Master Drilling is well positioned
to respond to the growing mechanisation trend within the mining and civil industries thanks to our technological leadership skills,
and our proven services track record.
Master Drilling continued to strengthen its internally developed technology service offering during the period and met several
development milestones on its world-first technologies that we are confident will gain traction within our markets.
The concept phase of our Mobile Tunnel Borer is expected to commence in September 2017. This allows for continuous mining with no
blasting involved in the process, significantly enhancing mining efficiencies. We believe this to be where substantial future growth
shall originate from.
The Industrial Development Corporation of South Africa Limited (IDC) confirmed partial funding for the first phase of our
Blind Shaft Boring System (BSBS) development. The BSBS allows cost-effective and safe access to ore bodies at great depths
and situated in hard substrate. With the entire operation conducted without the need for blasting, noise or fumes are no longer
a feature of the drilling process, and environmental impact is minimal.
Recent developments in Tunnel Boring Machinery have resulted in equipment that is able to bore out a suitably sized
excavation at a rate that far exceeds that of conventional methods. Weighing 16 metric tons, our Gripper Machine is
designed with a steering system to follow the seam as required and relies on friction and thrust to advance during
drilling and to maintain its "grip" inside the hole, while preventing itself from falling down the hole.
Our innovative tailored technology solutions meet the specific conditions and drilling requirements of our clients,
unlocking value across the geographies, sectors and commodities we operate in.
Plant and equipment
Two raise bore machines were added during the reporting period, contributing 4,7% towards growth in revenue. The fleet now
comprises of 106 raise bore and 33 slim drilling rigs. The introduction rate of new rigs coming on stream will settle down
with a focus on specialised technological solutions to satisfy our clients' needs.
Skills development
Retaining expertise and skills development are key priorities for Master Drilling. We are investing in skills development
based on a skills gap analysis previously conducted. This investment will extend our capacity to support our growth strategy.
The rest of 2017 will focus on targeted technical training in general.
Outlook and prospects
Diversification across geographies, commodities, currencies and industries remains a key part of our long-term strategy.
We are experiencing strong demand with increased enquiries across the various regions and commodities and expect this to continue.
The IDC has approved the partial funding of the first phase of the BSBS project, and roll-out of the project is expected to
take place in 2019. Further opportunities to develop home-grown technologies that support cost-effective, simpler and improved
drilling systems are also being explored with the IDC.
Various opportunities in first-world countries such as Australia, Canada and USA are still being investigated.
We will continue to focus on working capital management whilst decreasing project initiation costs. New geographies,
clients and technologies require large initial outlays and Master Drilling's robust support approach enables optimal
operations and maintenance support that are essential towards building trust with clients.
We expect the utilisation rates of our raise bore rigs to continue at approximately 70% for the remainder of 2017 with
an aim to drive rates to mid-70% from 2018 to improve return on investments.
Master Drilling's technology and experience put the company in a strong position to continue to support its clients'
drive to improve productivity and efficiencies whilst reducing operational risk.
Our vertically integrated business model supports specialised solutions in design and assembly of rigs, training and
engineering support and, ultimately, diverse drilling applications in a diversity of geographical locations and
industries.
Accounting policies
1. Basis of presentation
The condensed unaudited consolidated interim financial statements have been prepared in accordance with IAS 34: Interim
Financial Reporting, International Financial Reporting Standards, the SAICA reporting guides as issued by the Accounting
Standards Board and the requirements of the South African Companies Act, (Act No 71 of 2008), as amended and the
Listings Requirements of the JSE Limited. The condensed unaudited consolidated interim financial statements have been
prepared on the historical cost-basis, except certain financial instruments at fair value, and incorporate the principal
accounting policies set out below. They are presented in United States Dollar ("USD").
The significant accounting policies are consistent in all material respects with those applied in the audited
consolidated annual financial statements for the year ended 31 December 2016.
The condensed unaudited consolidated interim financial statements presented have been prepared by the corporate
reporting staff of Master Drilling, headed by Willem Ligthelm CA(SA), the Group's management accountant. This process
was supervised by André Jean van Deventer CA(SA), the Group's chief financial officer.
2. Significant accounting policies
Basis of consolidation
The Group financial statements incorporate all entities which are controlled by the Group.
At inception, the Group financial statements had been accounted for under the pooling of interest method as acquisition
of entities under common control is excluded from IFRS 3. The entities had been accounted for at historical carrying
values for the period presented.
Adjustments are made when necessary to the financial statements of subsidiaries to bring their accounting policies in
line with those of the Group.
All inter-company transactions, balances, income and expenses are eliminated in full on consolidation/combination.
Non-controlling interests in the net assets of combined subsidiaries are identified and recognised separately from the
Group's interest therein, and are recognised within equity. Losses of subsidiaries attributable to non-controlling
interests are allocated to the non-controlling interest even if this results in a debit balance being recognised for
non-controlling interest.
Control is considered to exist if all of the factors below are satisfied.
(a) the investor has power over the investee, i.e. the investor has existing rights that give it the ability to
direct the relevant activities;
(b) the investor has exposure, or rights to variable returns from its involvement with the investee; and
(c) the investor has the ability to use its power over the investee to affect the amount of the investors returns.
The Group measures its control of an investee at the time of its initial investment and again if changes in facts and circumstances
affect one or more of the control factors listed above. In assessing whether the Group has control over an investee, consideration
is given to many factors including shareholding, voting rights and their impact on the Group's ability to direct the management, operations
and returns of the investee; contractual obligations; minority shareholder rights and whether these are protective or substantive in nature;
and the financial position of the investee.
Property, plant and equipment
The cost of an item of property, plant and equipment is recognised as an asset when:
(a) it is probable that future economic benefits associated with the item will flow to the Group; and
(b) the cost of the item can be measured reliably.
Property, plant and equipment are initially measured at cost and subsequently at cost less any accumulated depreciation
and accumulated impairment losses.
Patents are acquired by the Group and have an infinite useful live. Patents are carried at cost less accumulated
impairment losses. Amortisation methods, useful lives and residual values are reviewed at each reporting date and
adjusted if appropriate.
Costs include costs incurred initially to acquire or construct an item of property, plant and equipment. Cost associated
with equipment upgrades that result in increased capabilities or performance enhancements of property and equipment are
capitalised. If a replacement part is recognised in the carrying amount of an item of property, plant and equipment, the
carrying amount of the replaced part is derecognised.
An asset under construction will be reclassified to the relevant asset category as soon as it is available for use.
The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located is
also included in the cost of property, plant and equipment, where the Group is obligated to incur such expenditure, and
where the obligation arises as a result of acquiring the asset or using it for purposes other than the production of
inventories.
Nature of business
Master Drilling Group Limited is an investment holding company, whose subsidiary companies provide specialised drilling
services to blue-chip major and mid-tier companies in the mining, civil engineering, infrastructure and hydroelectric energy
sectors, across a number of commodities and geographies. Master Drilling is the leader in the raise bore drilling services industry.
Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency of the
primary environment in which the entity operates, i.e. "functional currency". The condensed unaudited consolidated
interim financial statements are presented in USD (the "presentation currency"). Management believes that USD is more
useful to the users of the consolidated financial statements, as this currency most reliably reflects the global
business performance of the Group as a whole.
Going concern
Based on the information available to it, the Board of Directors believes that the Group remains a going concern.
Issued capital
During the current reporting period, share options granted previously were exercised and resulted in an
additional 2 000 000 shares being issued.
Operating segments
Changes were made to the operating segments from those disclosed at 31 December 2016. The changes will enable the chief
decision maker, under the direct supervision of the resident boards, to improve the assessment of performances and make
better informed decisions on the allocation of resources to the different operating segments. The comparative reporting
periods were adjusted accordingly as the information was available. See note 13 for more details.
Subsequent to reporting period
There have been no significant events subsequent to 30 June 2017 which require adjustment or additional disclosure to
interim results.
Dividends
The Board resolved not to declare an interim dividend but rather to consider an appropriate dividend at year-end.
Changes to the board
There were no changes to the Board since 31 December 2016.
Consolidated Statement of Financial Position
Unaudited six Audited year
months ended ended
Jun 2017 Dec 2016
Note(s) USD USD
Assets
Non-current assets
Property, plant and equipment 3 110 127 773 105 316 594
Intangible assets 4 3 043 042 3 043 042
Financial assets 11 002 585 10 068 354
Deferred tax asset 2 009 869 1 733 825
Investment in associate 6 001 669 6 023 825
132 184 938 126 185 640
Current assets
Inventories 26 843 321 24 437 264
Related-party loans 77 580 70 486
Trade and other receivables 5 36 860 560 39 014 664
Cash and cash equivalents 37 657 557 21 690 039
101 439 018 85 212 453
Non-current assets held for sale 6 1 264 336 1 209 520
102 703 354 86 421 973
Total assets 234 888 292 212 607 613
Equity and liabilities
Equity
Share capital 7 148 374 435 146 607 965
Reserves (87 767 076) (91 010 256)
Retained income 80 840 628 74 427 478
141 447 987 130 025 187
Non-controlling interest 16 485 676 16 291 360
157 933 663 146 316 547
Liabilities
Non-current liabilities
Interest bearing borrowings 8 38 155 609 17 806 057
Finance lease obligations 2 221 150 1 950 891
Deferred tax liability 9 127 846 9 266 022
49 504 605 29 022 970
Current liabilities
Interest bearing borrowings 8 4 625 547 8 650 837
Finance lease obligations 1 983 801 2 579 699
Related party loans 157 944 160 622
Current tax payable 2 617 787 1 561 045
Trade and other payables 9 18 064 945 22 998 427
Cash and cash equivalents – 1 317 466
27 450 024 37 268 096
Total liabilities 76 954 628 66 291 066
Total equity and liabilities 234 888 292 212 607 613
Consolidated Statement of Profit or loss and Other Comprehensive Income
Unaudited six Unaudited six Audited year
months ended months ended ended
Jun 2017 Jun 2016 Dec 2016
Note(s) USD USD USD
Revenue 60 517 224 53 808 765 118 102 983
Cost of sales (37 721 857) (31 997 953) (75 159 529)
Gross profit 22 795 367 21 810 812 42 943 454
Other operating income 1 199 133 516 516 4 645 115
Other operating expenses (11 864 464) (8 914 143) (21 743 714)
Operating profit 12 130 036 13 413 185 25 844 855
Investment revenue 430 194 398 053 808 845
Finance costs (1 017 267) (1 276 002) (1 940 479)
Share of profit from equity accounted investment ( 22 156) 176 233 556 085
Profit before taxation 11 520 807 12 711 469 25 269 306
Taxation (1 504 260) (3 024 302) (2 949 412)
Profit for the year 10 016 547 9 687 167 22 319 894
Other comprehensive income that will subsequently be classifiable to profit and loss:
Exchange differences on translating foreign operations 3 632 631 4 599 036 6 618 019
Other comprehensive income/(loss) for the year net of taxation 3 632 631 4 599 036 6 618 019
Total comprehensive income 13 649 178 14 286 203 28 937 913
Profit attributable to: 10 016 547 9 687 167 22 319 894
Owners of the parent 9 822 231 9 369 698 21 195 750
Non-controlling interest 194 316 317 469 1 124 144
Total comprehensive income attributable to: 13 649 178 14 286 203 28 937 913
Owners of the parent 13 454 862 13 968 734 27 813 769
Non-controlling interest 194 316 317 469 1 124 144
Earnings per share (USD) 10
Basic earnings per share (cents) 6.6 6.3 14.3
Diluted earnings per share (USD) 10
Diluted basic earnings per share (cents) 6.5 6.2 14.0
Earnings per share (ZAR)
Basic earnings per share (cents) 87,0 97,4 210,0
Diluted earnings per share (ZAR)
Diluted basic earnings per share (cents) 85,7 95,7 205,6
Consolidated Statement of Changes in Equity
Equity due Foreign
to change currency Share-based Attributable Non- Total
Share in control of translation payments Total Retained to owners of controlling Shareholders'
USD capital interests reserve reserve reserves income the parent interest equity
Balance as at 30 June 2016 146 607 965 (58 264 013) (35 393 042) 466 438 (93 190 617) 62 601 426 116 018 774 16 626 536 132 645 310
Share-based payments – – – 161 378 161 378 – 161 378 – 161 378
Dividends declared by subsidiaries – – – – – – – (1 141 851) (1 141 851)
Total comprehensive income for the year – – 2 018 983 – 2 018 983 11 826 052 13 845 035 806 675 14 651 710
Total changes – – 2 018 983 161 378 2 180 361 11 826 052 14 006 413 (335 176) 13 671 237
Balance as at 31 December 2016 146 607 965 (58 264 013) (33 374 059) 627 816 (91 010 256) 74 427 478 130 025 187 16 291 360 146 316 547
Issue of ordinary shares 1 766 470 – – (455 306) (455 306) – 1 311 164 – 1 311 164
Share-based payments – – – 65 855 65 855 – 65 855 – 65 855
Dividends declared by subsidiaries – – – – – – – – –
Total comprehensive income for the year – – 3 632 631 – 3 632 631 9 822 231 13 454 862 194 316 13 649 178
Dividends to shareholders – – – – – (3 409 081) (3 409 081) – (3 409 081)
Total changes 1 766 470 – 3 632 631 (389 451) 3 243 180 6 413 150 11 422 800 194 316 11 617 116
Balance as at 30 June 2017 148 374 435 (58 264 013) (29 741 428) 238 365 (87 767 076) 80 840 628 141 447 987 16 485 676 157 933 663
Note 7
Consolidated Statement of Cash Flows
Unaudited six Unaudited six
months ended months ended
Jun 2017 Jun 2016
Note(s) USD USD
Cash flows from operating activities
Cash generated from operations 11.1 11 689 257 4 391 721
Interest income 430 194 398 053
Finance costs (1 017 267) (1 276 002)
Tax paid (1 871 942) (1 362 779)
Net cash from operating activities 9 230 242 2 150 993
Cash flows from investing activities
Purchase of property, plant and equipment (5 953 419) (7 330 531)
Sale of property, plant and equipment 176 828 800 868
Financial assets movement (478 925) –
Acquisition of subsidiary – (1 543 451)
Acquisition of associate – –
Net cash from investing activities (6 255 516) (8 073 114)
Cash flows from financing activities
Proceeds of financial liabilities 19 000 000 7 963 443
Repayment of financial liabilities (2 675 737) (3 786 965)
Proceeds from financial leases 482 885 734 573
Repayment of financial leases (808 524) (1 719 501)
Related party loan movement (4 416) (143 821)
Proceeds on issue of share capital 1 311 164 –
Dividends paid (3 409 081) –
Net cash from financing activities 13 896 291 3 047 729
Total cash movement for the period 16 871 017 (2 874 392)
Cash at the beginning of the period 20 372 573 22 496 770
Effect of exchange rate movement on cash balances 413 967 350 007
Total cash at end of the period 37 657 557 19 972 385
Property, plant and equipment
Accumulated
depreciation
and
Jun 2017 impairment Carrying
USD Cost losses value
Land and buildings 4 206 200 (100 313) 4 105 887
Plant and machinery 125 015 244 (37 045 628) 87 969 620
Assets under construction 3 879 053 (2 567) 3 876 487
Furniture and fittings 1 211 391 (152 850) 1 058 540
Motor vehicles 3 310 540 (1 582 746) 1 727 794
IT equipment 951 617 (451 678) 499 940
Finance lease: Plant and equipment 13 081 018 (3 532 806) 9 548 211
Computer software 2 449 540 (1 337 746) 1 111 794
Patents 229 500 – 229 500
Total 154 334 103 (44 206 333) 110 127 773
Accumulated
depreciation
Dec 2016 and Carrying
USD Cost impairment value
Land and buildings 4 003 516 (80 517) 3 922 999
Plant and machinery 108 189 065 (31 481 087) 76 707 978
Assets under construction 2 398 153 (2 566) 2 395 587
Furniture and fittings 1 403 341 (339 278) 1 064 063
Motor vehicles 3 158 777 (1 354 858) 1 803 919
IT equipment 887 221 (376 563) 510 658
Finance lease: Plant and equipment 22 349 043 (4 909 530) 17 439 513
Computer software 2 187 833 (945 456) 1 242 377
Patents 229 500 – 229 500
Total 144 806 449 (39 489 855) 105 316 594
Borrowing cost
Included in the cost of land and buildings are capitalised borrowing cost related to the acquisition of
land in Peru to the amount of USD52 961 (2016: USD138 978) calculated at a capitalisation rate of 5,9%.
3.1 Reconciliation of property, plant and equipment
Exchange
difference on Assets acquired
consolidation through Impairment
Jun 2017 Opening of foreign business Reclassifications of fixed
USD balance Additions subsidiaries combination and transfers Disposals Depreciation assets Total
Land and buildings 3 922 999 52 961 139 622 – 6 925 – (16 620) – 4 105 887
Plant and machinery 76 707 978 4 025 831 2 011 878 – 8 397 201 (152 889) (3 020 379) – 87 969 620
Assets under construction 2 395 587 1 474 036 6 864 – – – – – 3 876 487
Furniture and fittings 1 064 063 7 919 2 749 – 2 203 (345) (18 049) – 1 058 540
Motor vehicles 1 803 919 229 949 17 810 – (15 096) (21 337) (287 451) – 1 727 794
IT equipment 510 658 63 924 5 936 – (6 875) (4 583) (69 120) – 499 940
Finance lease: Plant and equipment 17 439 513 98 799 736 130 – (8 528 810) – (197 421) – 9 548 211
Computer software 1 242 377 – 28 893 – – – (159 476) – 1 111 794
Patents 229 500 – – – – – – – 229 500
105 316 594 5 953 419 2 949 882 – (144 452) (179 154) (3 768 516) – 110 127 773
Exchange
difference on Assets acquired
consolidation through Impairment
Dec 2016 Opening of foreign business Reclassifications of fixed
USD balance Additions subsidiaries combination and transfers Disposals Depreciation assets Total
Land and buildings 3 572 664 297 042 90 182 – – – (36 889) – 3 922 999
Plant and machinery 58 950 433 12 271 956 2 743 043 4 840 001 3 417 381 (711 201) (4 535 247) (268 388) 76 707 978
Assets under construction 5 505 621 695 298 9 148 – (3 814 480) – – – 2 395 587
Furniture and fittings 797 036 291 614 106 480 8 046 – (68 967) (70 146) – 1 064 063
Motor vehicles 1 683 547 509 263 (24 152) 72 350 152 798 (47 477) (542 410) – 1 803 919
IT equipment 249 540 187 740 10 805 2 694 172 983 (2 887) (110 217) – 510 658
Finance lease: Plant and equipment 17 481 071 1 524 268 856 607 42 925 (1 317 090) – (1 148 268) – 17 439 513
Computer software 1 063 054 587 286 76 512 – – – (484 475) – 1 242 377
Patents 229 500 – – – – – – – 229 500
89 532 466 16 364 467 3 868 625 4 966 016 (1 388 408) (830 532) (6 927 652) (268 388) 105 316 594
Security
Moveable assets to the value of ZAR1.2 billion of the South African subsidiaries have been bonded to Absa Capital as
security for an interest-bearing loan.
Impairment
During 2016, the Exploration segment in our South African segment recognised an impairment loss of USD268 388. The main
elements were a write-down of the idle slim drilling drill rigs to their value in use. The calculation of value in use
is most sensitive to the mining commodity cycles. The future cash flows of the particular drill rigs was negatively
affected by the current declining commodity prices of our customers, which mainly comprise of mining operations. As a
result of the declining prices, our customers reduced and deferred exploration slim drilling activities.
Intangible assets
2017 2016
USD USD
Goodwill recognised from value chain business combinations 2 612 584 2 612 584
Goodwill recognised from raisebore business combinations 430 458 430 458
Goodwill recognised from business combinations 3 043 042 3 043 042
Goodwill recognised
The increase of USD430 458 in goodwill during 2016 arose with the Bergteamet Latin America SpA acquisition transaction.
Trade and other receivables
Jun 2017 Dec 2016
USD USD
Trade receivables – Normal 29 592 979 26 789 516
Trade receivables – Retention 2 898 955 3 098 167
Loans to employees 104 432 81 097
Pre-payments 1 137 874 1 372 357
Deposits 70 367 46 890
Indirect taxes 559 093 1 426 352
Sundry 2 496 860 6 200 285
36 860 560 39 014 664
Trade and other receivables past due but not impaired
The ageing of amounts past due but not impaired is as follows:
Outstanding on normal cycle terms 20 492 525 10 981 269
One month past due 5 403 974 6 702 871
Two months past due 3 715 707 5 591 572
Three months and over past due 3 024 133 6 748 090
Allowance for doubtful debts (144 405) (136 119)
32 491 934 29 887 683
Trade receivables of South African subsidiaries have been ceded to Absa Capital as security for interest-bearing loan.
The movement in allowance for doubtful debts is presented below
Balance 1 January 136 119 636 799
Exchange differences on translation of foreign operations 8 286 58 431
Amounts written off – –
Allowance for doubtful debts (reversed)/provided for – (559 111)
144 405 136 119
The carrying amount in USD of trade and other receivables are denominated in the following currencies:
USD USD
United States Dollar (USD) 19 589 827 17 591 574
South African Rands (ZAR) 8 635 592 7 119 116
Brazilian Reals (BRL) 1 999 286 4 455 101
Mexican Peso (MXN) 381 154 373 151
Chilean Peso (CLP) 5 499 848 7 360 884
Peruvian Nuevo Sol (PEN) 118 318 1 289 943
Chinese Yuan Renminbi (CNY) 259 607 440 543
Guatemalan Quetzal (GTQ) 48 –
Colombian Peso (CLP) 209 775 217 247
Euro (EUR) 167 105 167 105
36 860 560 39 014 664
Non-current assets held for sale
In September 2016, management committed to a plan to sell the land and building owned in Peru. Master Drilling Peru uses
the land and building to house its administrative and workshop facilities. Management's plan is to develop land owned
into offices and workshop facilities. Negotiations to sell the land and buildings are at an advanced stage. The sale is
expected to be finalised by end of 2017.
No impairment losses were recognised in profit and loss as the carrying amount of the assets held for sale exceed the
fair value less cost to sell. The movement in balance since the end of the previous reporting period originated as a
result of the PEN foreign exchange movement against the USD.
As at the end of the reporting period, the assets held for sale comprised of the following:
Jun 2017 Dec 2016
USD USD
Land and buildings 1 264 336 1 209 520
Assets held for sale 1 264 336 1 209 520
Share capital
Jun 2017 Dec 2016
Number of Number of
Authorised shares shares
Ordinary shares 500 000 000 – 500 000 000 –
Jun 2017 Dec 2016
Reconciliation of number Number of Number of
of shares issued: shares Value USD shares Value USD
Balance at the beginning of the reporting period 148 265 491 146 607 965 148 265 491 146 607 965
Movement 2 000 000 1 766 470 – –
Balance at the end of the reporting period 150 265 491 148 374 435 148 265 491 146 607 965
The unissued shares are under the control of the directors. The increase in the number of issued shares is a result of
share options that were excercised during the six months since the last reporting period. The Group is holding 327 286
treasury shares allocated but not yet issued.
Interest-bearing Borrowings
Jun 2017 Dec 2016
USD USD
Held at amortised cost
Secured
Kibali Goldmines SPRL – 804 153
The loan is denominated in USD, secured by owned plant and machinery which is pledged as collateral, bears no interest and is repayable over the drilling
contract period. The loan was settled during the current reporting period
Banco Internacional del Perú S.A.A. 2 042 150 2 334 544
A portion of the loan, USD500 000, is denominated in Peruvian Nuevo Sol, secured by owned plant and machinery which is pledged as collateral, bears
interest at 5,1% and is repayable in two monthly installments of USD350 000 and USD150 000 in July 2017.
The balance, USD1 542 150, is denominated in USD, secured by property, bears interest at 5,5% per annum and is repayable in monthly installments of
USD19 000.
Absa Capital, a division of Absa Bank Limited 40 739 006 23 318 197
A portion of the loan, USD14 298 828, is denominated in USD and bears interest at the margin rate of 2,95% over libor as applicable. The remainder of the
loan, USD6 440 178, is denominated in ZAR and bears interest at the margin rate of 2,95% over jibar as applicable. The loan is repayable in 20 quarterly
installments of which 15 remains.
An additional loan to the value of USD20 000 000 was approved during the current reporting period and USD19 000 000 was advanced in June 2017. The USD
denominated portion of the loan, USD9 000 000 bears interest at the margin rate of between 3,45% and 3,90% over libor as applicable. The remainder of the
loan, USD10 000 000, is denominated in ZAR and bears interest at the margin rate of between 3,45% and 3,90% over jibar as applicable. The full capital
value of the loan is repayable in December 2022 while interest is repayable in quarterly installments from September 2017.
Total interest-bearing borrowings 42 781 156 26 456 894
Non-current liabilities
At amortised cost 38 155 609 17 806 057
Current liabilities
At amortised cost 4 625 547 8 650 837
42 781 157 26 456 894
Trade and other payables
Jun 2017 Dec 2016
USD USD
Trade payables 7 890 593 9 931 942
Income received in advance 85 882 391 683
Indirect taxes 1 703 431 5 914 578
Leave pay accruals 1 955 275 1 821 971
Other accruals 6 429 764 4 938 253
18 064 945 22 998 427
Earnings per Share
Jun 2017 Jun 2016 Dec 2016
USD USD USD
Reconciliation between earnings and headline earnings
Basic earnings for the year 10 016 548 9 687 167 22 319 894
Deduct:
Non-controlling interest (194 316) (317 469) (1 124 144)
Attributable to owners of the parent 9 822 231 9 369 698 21 195 750
(Gain)/Loss on disposal of fixed assets (2 327) 23 109 (230 161)
Impairment of plant and equipment – – 268 388
Tax effect on loss on disposal of fixed assets and impairments 558 (6 470) (48 284)
Headline earnings for the year 9 820 463 9 386 337 21 185 693
Earnings per share (cents) 6.6 6.3 14.3
Diluted earnings per share (cents) 6.5 6.2 14.0
Headline earnings per share (cents) 6.6 6.3 14.3
Diluted headline earnings per share (cents) 6.5 6.2 14.0
Net asset value per share (cents) 106.2 89.5 98.7
Tangible net asset value per share (cents) 104.2 87.4 96.6
Dividends per share (cents) 30.0 – –
Weighted average number of ordinary shares at the end of the year for the purpose of basic earnings per share and headline earnings per 148 694 258 148 265 491 148 265 491
share
Effect of dilutive potential ordinary shares – employee share options 2 593 519 2 676 268 3 003 793
Weighted average number of ordinary shares at the end of the year for the purpose of diluted basic earnings per share and diluted headline 151 287 777 150 941 759 151 269 284
earnings per share
CASH GENERATED FROM OPERATIONS
Jun 2017 Jun 2016
USD USD
Profit before taxation 11 520 807 12 711 469
Adjustments for:
Depreciation and amortisation 3 768 516 3 109 987
Impairment – –
Share of profit from equity accounted investment 22 156 (176 233)
Translation effect of foreign operations 907 958 (452 183)
Share-based payment – equity settled 65 855 93 971
Share-based payment – liability – (509 936)
Loss on sale of assets 2 327 23 109
Interest received (430 194) (398 053)
Finance costs 1 017 267 1 276 002
Changes in working capital:
Inventories (2 406 057) (7 045 149)
Trade and other receivables 2 154 104 (5 153 376)
Trade and other payables (4 933 482) 912 113
11 689 257 4 391 721
Capital Commitments
Jun 2017 Dec 2016
USD USD
Capital expenditure authorised by the directors and contracted for within 12 months. Capital expenditure will be funded through cash generated from 1 947 373 4 276 175
operations.
Segment Reporting
13.1 Mining activity
The following table shows the distribution of the Group's combined sales by mining activity, regardless of where the
goods were produced:
Jun 2017 Jun 2016 Dec 2016
USD USD USD
Sales revenue by stage of mining activity
Exploration 269 563 316 288 695 690
Capital 10 496 193 8 995 132 22 792 887
Production 49 751 468 44 497 345 94 614 406
60 517 224 53 808 765 118 102 983
Gross profit by stage of mining activity
Exploration 106 645 131 801 297 369
Capital 4 197 059 2 758 394 9 350 969
Production 18 491 663 18 920 617 33 295 116
22 795 367 21 810 812 42 943 454
The chief decision-maker of the Group is the chief executive officer. The chief executive officer, under the direct
supervision of the resident board, manages the activities of the Group concomitant to the inherent risks facing these
activities. It is for this reason that the activities are separated between exploration, capital and production stage
drilling. The equipment and related liabilities of the Group can be used at multiple stages and therefore cannot be
presented per activity.
13.2 Geographical segments
Although the Group's major operating divisions are managed on a worldwide basis, they operate in four principal
geographical areas of the world.
Jun 2017 Jun 2016 Dec 2016
USD USD USD
Sales revenue by geographical market
Africa 27 382 245 21 844 127 49 006 600
Central and North America 6 370 055 4 604 029 11 064 465
Other countries – – –
South America 26 764 924 27 360 609 58 031 918
60 517 224 53 808 765 118 102 983
Gross profit by geographical market
Africa 13 002 342 10 593 781 21 467 899
Central and North America 1 207 002 1 139 852 2 011 437
Other countries – (6 835) 2 131 646
South America 8 586 023 10 084 014 17 332 472
22 795 367 21 810 812 42 943 454
The gross profit percentages vary based on drilling ground conditions, competition in the markets and the mix of
in-country and foreign cost.
REGISTERED AND CORPORATE OFFICE
4 Bosman Street
PO Box 902
Fochville, 2515
South Africa
DIRECTORS
Executive
Daniël (Danie) Coenraad Pretorius Chief executive officer and founder
André Jean van Deventer Financial director and chief financial officer
Barend Jacobus (Koos) Jordaan Technical director
Gareth (Gary) Robert Sheppard # Chief operating officer
Non-executive
Hendrik Roux van der Merwe Chairman and independent non-executive
Akhter Alli Deshmukh Independent non-executive
Jacques Pierre de Wet Independent non-executive
Johan Louis Botha Independent non-executive
Shane Trevor Ferguson Non-executive
Fred George Dixon Alternate director
# Resident in Peru
COMPANY SECRETARY
Andrew Colin Beaven
6 Dwars Street
Krugersdorp
1739
South Africa
PO Box 158, Krugersdorp, 1740
South Africa
JSE SPONSOR
Investec Bank Limited
(Registration number: 1969/004763/06)
100 Grayston Drive, Sandown
Sandton, 2196
South Africa
INDEPENDENT AUDITORS
Grant Thornton Johannesburg Partnership
South African member of Grant Thornton International Limited
52 Corlett Drive
Illovo
2196
South Africa
SHARE TRANSFER SECRETARIES
Computershare Investor Services Proprietary Limited
(Registration number: 2004/003647/07)
Rosebank Towers, 15 Biermann Avenue
Rosebank, 2196
(PO Box 61051, Marshalltown, 2107)
South Africa
INVESTOR RELATIONS CONTACTS
Lizelle du Toit
Instinctif Partners
Telephone: +27 11 050 7506
Mobile: +27 82 465 1244
E-mail: MasterDrilling@instinctif.com
GENERAL E-MAIL QUERIES
info@masterdrilling.com
Master Drilling website
www.masterdrilling.com
Company Secretarial E-mail
Companysecretary@masterdrilling.com
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www.masterdrilling.com and under the "investors" tab on the main page. The information is updated regularly and
investors should visit the website to obtain important information about Master Drilling.
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